Contractual Penalty in a Lease: What You Can and Can’t Include
A contractual penalty in a lease only works for non-monetary obligations. That’s it. A clause setting a penalty for every day of late rent doesn’t give the landlord grounds to demand that amount. For unpaid rent, the landlord is owed interest for late payment, not a penalty. Below I go through the clauses that work, the ones that are flawed, and how to write a clause you can actually enforce later.
Can you set a contractual penalty for late rent?
No. Rent is a monetary obligation, and a contractual penalty applies only to non-monetary obligations. Art. 483 § 1 of the consolidated text of the Civil Code says the parties may agree that damage caused by non-performance or improper performance of a non-monetary obligation will be remedied by paying a specified sum. Non-monetary: that one word does all the work here. So a clause copied from an online template, with a penalty for late payment, doesn’t create a claim for that amount (and there are plenty of such templates around). Don’t confuse it with a security deposit either. The deposit secures the landlord’s claims and has its own rules, described in the article on when you can keep the deposit.
Interest for late rent instead of a penalty
Is the tenant late with the rent? Then the landlord claims interest for late payment under Art. 481 of the Civil Code. It is due for the delay itself. No need to prove any damage, and regardless of what caused the delay, even if the debtor isn’t responsible for it. The landlord shows the due date and the missing payment, nothing more. In practice it starts with a written demand and a plain conversation, and proven methods for recovering unpaid rent amicably often let you avoid court altogether.
What can a contractual penalty in a lease cover?
Breaches of the tenant’s non-monetary obligations. In other words, things the tenant must do or must not do. Typical cases:
- a penalty for not vacating the property after the lease ends,
- breaking a no-pets rule,
- breaking a no-smoking rule in the flat,
- subletting or letting someone else use the property without the landlord’s consent.
A contractual penalty for pets in the flat only makes sense if the lease contains a clearly worded ban. Without it there’s nothing to enforce; more on this in the article on how to prepare pet clauses in the lease. Oh, and one more thing: under Art. 484 § 1 of the Civil Code, the penalty is due regardless of the amount of damage, and you can claim compensation higher than the penalty only if the parties agreed to it.
Valid and flawed clauses: examples in a table
Whether a clause works depends on two things. Does it concern a non-monetary obligation? And does it state a specific sum? A vague wording or a reference to “the amount of damage” makes the clause pointless, because the whole idea of a penalty is to spare you from calculating losses. Here’s how it looks with typical wording:
| Flawed clause | Structurally correct clause |
|---|---|
| A penalty for each day of delay in paying rent | Interest for late payment of rent at the statutory rate |
| A penalty for breaching house rules or rules of coexistence | A penalty of [amount] for subletting the property without the landlord’s written consent |
| A penalty equal to the damage suffered | A penalty in a specific sum stated in the lease |
| A penalty for not vacating the property, with no deadline given | A penalty of [amount] for each day the property is not vacated after the lease end date |
How to word a contractual penalty in a lease so you can enforce it?
The clause needs three elements: a specific obligation, the event that breaches it, and a specified sum or a way to calculate it. Missing one? That’s a problem. When drafting, I recommend going step by step:
- Name the non-monetary obligation, e.g. no smoking in the property.
- Describe the breach so it can be proven with a report, a photo or a witness statement.
- Enter a one-off sum or a sum charged for each day the breach continues.
- Decide whether you reserve the right to compensation exceeding the penalty.
- Set the form and deadline for calling on the tenant to pay.
Watch out for one trap. When the landlord acts as a business and the tenant is a consumer, such a clause may be deemed an unfair contract term within the meaning of Art. 385¹ of the Civil Code. In my view, with an unusual lease it’s better to have a lawyer draft the clauses than to explain yourself in court later. It’s worth keeping the signed lease and annexes in one place, for example in the Tenanto documents module, so you have them at hand if a dispute arises.
Reducing a contractual penalty: when will a court lower it?
The tenant can demand a reduction of the penalty in two cases: when the obligation has been largely performed or when the penalty is grossly excessive. This is set out in Art. 484 § 2 of the Civil Code. What does it mean for the landlord? An inflated sum doesn’t strengthen their position. If anything, it opens the door to a dispute over reducing it. There’s no universal “safe” amount, because the court decides, and it looks at the circumstances of the specific case.
Put a contractual penalty in the lease for not vacating the property or subletting without consent, and leave unpaid rent to interest for late payment.
Frequently asked questions
Such a penalty simply isn’t due, because it concerns a monetary obligation, and the Civil Code allows a contractual penalty only for non-monetary obligations. So the landlord can’t enforce the amount from such a clause. But they are entitled to interest for the late payment.
Only if the lease expressly provides for it, in line with Art. 484 § 1 of the Civil Code. Without such a provision, the landlord is left with the penalty. Even if the damage turned out to be greater.
Be careful here. The deposit has a separate security function and is not the same as a penalty. Whether a deduction is possible depends on the wording of the lease and the circumstances of the case. In doubt? Talk to a lawyer first, and only then keep any part of the deposit.
